Posted on April 22, 2013
Gold prices traded sharply higher on Monday as the new trading week began. Gold prices appear to be stabilizing following the chaotic selling seen over the last two weeks. Demand for physical gold bullion has remained impressively strong during the recent downturn and seems to be the single biggest contributing factor to gold’s turn around.
Physical demand coming out of Asia has been particularly supportive for the yellow metal. Jewelers, and people preparing for the Indian wedding season took advantage of prices at the lowest levels since 2011. Physical buyers have seized the opportunity to add to physical holdings at reduced price levels.
Obviously markets can turn on a dime, but for now it looks as if the worst for gold may be over. In fact, today’s strong showing for bullion has prices solidly back above the $1400 level. Although there still appears to be a large short presence in the gold market, this will likely decrease if gold can continue to push higher thus forcing shorts in the market to cover their positions.
This could help fuel a rally in gold even further. The chart does look more constructive currently and the metal looks to have built a base. So what happens next? That’s the big question. A lot of what occurs in gold over the next several weeks will likely be attributed to outside markets and whether or not investors are in a risk on or risk off mindset.
Looking at some of these outside markets, crude oil is trying to stabilize in the high eighties per barrel. The trend remains down however, and a further decrease in the value of crude could potentially weight on bullion prices. In addition to oil, the dollar index remains very stubborn and is holding at higher levels.
Should the dollar index strengthen further it could also potentially negatively affect gold prces. The stock market was firmer today after seeing some selling pressure last week. In fact, last week saw several decent sized daily ranges, and that could possibly indicate a top is forming.
For now however, the trend in stocks remains up and this could be considered a bearish factor for gold. Should the “Correction”, if you want to call it that, get more serious it perhaps could work in gold’s favor as a renewed sense of risk off could drive perceived flight to safety buying.
Bullish for gold, not much has changed from a fundamental standpoint in recent weeks. The printing presses continue to run and debt continues to grow. The next fiscal crises always seems to be right around the corner. These facts will likely keep a bid in gold for the foreseeable future and long term buyers will welcome additional opportunities to add to holdings at reduced prices.